Externality taxes are seen as a crucial instrument in the environmental and climate policy toolbox. However, due to poor design and inadequate tax rates, externality taxes don't always live up to their potential. These issues are addressed by the Danish pesticide tax, which was revised in 2013 and differentiates tax rates based on how dangerous a product is and dramatically raises prices for the most harmful pesticides. Using a panel data set containing pesticide use on 1900 mediumsized and large farms two years before and four years after the tax adjustment, this article assesses the redesigned tax. We discover that the fee was successful in encouraging consumers to switch from more harmful items to less harmful ones, which led to a 16 percent decrease in pesticide burden. Retaliation for the pesticide tax changes from farm to farm depending on the types of crops planted. The work offers empirical proof that a correct tax design may overcome the low price sensitivity reported with earlier pesticide levies in Denmark and elsewhere, making it highly relevant for governments looking to reduce pesticide load. Additionally, this study provides a unique illustration of an ex-post evaluation that is based on comprehensive farm-level data and compares registered pesticide use before and after the tax revision, allowing for a more accurate estimation of the tax's effects.
KeywordsEnvironmental tax; Pesticide tax; Tax design; Tax effectiveness; Policy evaluation; Ex-post evaluation
Published Date: 2023-02-28; Received Date: 2023-02-02
